A cynical commentary about developments in the South African financial markets and the incomprehensible activities and pronouncements of bureaucrats and politicians.

Friday, 2 January 2015

AND THEY’RE OFF

Astonishingly the All Share index managed
to scramble back up out of the nearly bottomless pit it fell into last month.
It ended more or less where it started 31 days earlier but after giving many
people a severe fright. This enabled the total performance for calendar 2014 to
reach 10.9%pa, a level that seemed impossible just days earlier. Nevertheless this
is a lot lower than the long term average annual performance of just over
20%pa. But 2014 was the 6th year in a row in which the JSE delivered
a positive return – something which has never happened before in at least the
last 40 years. Is this a sign that 2015 must surely be a down year? Markets are notoriously disrespectful of
precedent.

Unpacking the returns a bit, it is
intriguing to note that despite seeing a bank blow up last year, the banking
sector index romped in with a 32% total return. Are the survivors really making
so much money? Many of us distrust (and even dislike) Telkom so it’s
dispiriting to note that it single-handedly drove the fixed-line index to a 150%pa
return! With a current market capitalisation of some R36bn, merchant bankers are
likely queuing up outside National Treasury waving proposals for the complete
privatisation of this now suspiciously overpriced government asset. The Listed Property
index reveals that shareholders enjoyed a 27% return last year and the Health Group
index came up with 36%pa suggesting that something may be being mispriced in
this industry. Unsurprisingly the mining index lost 15% in 2014 with platinums
and coals down 31% and 27% respectively. Sadly this is one forecast many will
have got right as the situation at the start of last year was not promising and
everything seems to be stacked against this industry

It is fashionable to wail about the
state’s financial situation. The most recent cause for concern is about alleged
corruption and favouritism at SARS, the nation’s tax collecting agency.However, over the past twelve months, total
revenue collected amounted to R930 bn, which is more than 11% greater than they
reported a year ago. Clearly those of us who don’t have the contacts required
to be dropped quietly from the SARS address list are digging ever deeper. On
the expenditure side the equivalent figure is R1 104bn which is just 7% higher
than the comparable amount for the prior period. In the utterly unlikely event
that these growth rates were to hold for the next 6 years, the minister of
finance in 2021 would be able to boast of a balanced budget! Obviously those of
us still looking for a bad news story can point to the fact that currently for
every R100.00 that SARS collects, the departments and ministries spend R118.71.
It would certainly help if the politicians and their employees were a bit more
parsimonious in their spending habits.

The unprecedented collapse in the price
of oil, mankind’s largest expenditure item should begin soon to be noticed in
the prices of everything that requires transporting.. Already indignant letters
in the media are demanding that stores ought to be slashing prices on life’s
essentials such as bubbly and watermelons. Is there any sign that airlines are
trimming their fuel surcharge? Undoubtedly producers and distributors are going
to enjoy this opportunity for as long as they can and they will be
surreptitiously supported by the beneficiary of value added taxes i.e.
governments. Only properly educated economists understand why deflation is a
bad thing. The rest of us are happy to see the prices of everything drop; except
of course, the price of our own labour.

While it certainly is great to see the
Proteas playing test cricket at home this summer there seems to be a spark
missing among the opposition West Indies side.
Pity really. Oh well one can still watch with half and eye while updating the
new diary with the Grand Prix dates and the two world cup schedules. This year
has a great deal of potential to either raise or crush our spirits while seated
on the TV couch. Two world cups and the Afcon trophy in the cupboard by year
end is an exciting prospect.